In the wake of Hurricanes Katrina, Rita, and Wilma in 2005, many agencies of the federal government imposed foreclosure moratoriums, including HUD, the VA, the Rural Housing Service, Fannie Mae, and Freddie Mac. New foreclosures were held off on, while foreclosures already going through the court system were postponed in an attempt to encourage servicers and lenders to work more closely with homeowners to help them save their homes. After all, a foreclosed home is good business for servicers, but an abandoned, destroyed, flood-damaged home is an opportunity to negotiate loan modifications and other solutions.

In the event of a disaster, Fannie Mae requires foreclosing servicing companies to reconsider evicting homeowners, especially if there is a lack of available housing. If the mortgage servicer and its attorneys decide not to proceed with an eviction, they may charge the former owners rent on a month-to-month basis, depending on what the borrowers can afford.

Having a full foreclosure or a bankruptcy on one's credit report is typically fatal to new mortgage applications for the first two years after the incident. A deed in lieu of foreclosure is viewed as just one small step below having a full foreclosure. Thus, the main benefit of the deed in lieu is to transfer the property sooner and get through the two-year period where it will be almost impossible to obtain a new mortgage.

If a mortgage is held by the federal government or insured or guaranteed by it, certain regulations determine how servicing companies should proceed with foreclosure. If these procedures are not followed, homeowners may have more defenses to foreclosure, including a full legal defense based on the servicer's failure to offer assistance or service a loan properly.

Although many attorneys and homeowners feel that the power of sale clause used in deeds of trust in nonjudicial foreclosure states deprive homeowners of due process, courts feel differently. They have ruled that, because the agreement is between two private parties (the bank and the borrowers), there is no due process protection. Only if there was a state actor would due process protections be granted to homeowners. Of course, banks are given a protected monopoly by the government to create money (legal tender) based on nothing (fractional reserve banking), which would usually be a state action -- but this is conveniently ignored.

The following is a list of protections homeowners have if their loan is insured by the Federal Housing Administration (FHA). Lenders must meet these requirements to begin foreclosure:

• Three monthly payments are due
• Foreclosure is not allowed if the default is based on a missed escrow payment that is due in a lump sum
• Notice of default must be sent to the borrowers before the second month of delinquent payments
• Before the third payment is missed, the lender must make an effort to arrange a face-to-face meeting with the borrowers
• In many situations, the lender must accept partial payments if the homeowners are able to make them

For mortgage insured by HUD, there are two types of special forbearance plan. The first type must include a repayment plan that lasts for at least four months after payments have been suspended for a period of time. During the period of suspended payments, homeowners may be required to make partial payments. The second type of forbearance allows for a short-term repayment plan to be combined with a partial claim or a loan modification.

A partial claim is not widely known and is rarely used by homeowners to stop foreclosure on their properties, and for good reason. Look at the list of requirements for this government assistance:

• Have a mortgage insured by HUD
• Be at least four months behind in payments
• Total arrears must add up to less than twelve months of payments
• Must be able to make full monthly payments
• Loan modification or special forbearance will not solve the problem

With HUD loans, a partial claim may be used by homeowners who have filed for bankruptcy to stop foreclosure (either Chapter 7 or Chapter 13). However, a mortgage modification may not be used with a partial claim.

One of the reasons that HUD distorts the housing market is through its payments to homeowners and lenders for performing certain tasks related to preventing foreclosure. For instance, pre-foreclosure sales can net homeowners up to $1,000; deed in lieu of foreclosure will net $2,000 for borrowers. Lenders can receive $100 for each special forbearance, $750 for loan modifications, $500 for partial claims, $1,000 for a pre-foreclosure sale, and $250 for a deed in lieu.

When preparing a workout application, families that have one parent at home taking care of children need to explain this to lenders who may look unfavorably on the fact that both parents are not working. Comparing costs of childcare to income from a potential job should be done to show the mortgage company that staying at home is more cost effective.

Recasting a loan refers to a type of modification of the original note where the missed payments are added to the back end of a mortgage. The life of the loan is extended and the borrowers will eventually have to pay back those missed payments.

Although recasting a loan sounds like a great idea that could help many borrowers get back on track with a regular monthly payment and worry about their arrears at the end of the loan or when they refinance or sell, leave it up to the mortgage industry to mess it up. Mortgage accounting rules have been changed, and many large lenders and Fannie and Freddie no longer recast loans.

Short term repayment plans can be verbally agreed to with a lender or mortgage servicer and usually last from three to six months. Longer term plans need approval from the mortgage holder. Twelve to twenty-four months are fairly common time frames for a repayment plan for seriously delinquent borrowers, although even longer plans can be proposed to avoid foreclosure.

Although there are numerous methods when it comes to loan modification, here are five common ones that banks and homeowners often agree to:

1. Reducing the interest rate
2. Reducing the principal balance of the mortgage
3. Extending the payment period of the loan
4. Reamortizing the loan and the arrears
5. Placing a deferred junior lien on the home

One reason borrowers request financial hardship information and income and asset documentation in the case of a short sale is to make sure that a deficiency judgment has little value. If homeowners claim to have a lot of assets, the bank may just foreclose and pursue a deficiency.

Clear title can not be conveyed through a deed in lieu of foreclosure. If there are tax liens, second mortgages, mechanic's liens, or similar issues, the bank will not accept the deed in lieu. In that case, the foreclosure will usually go forward if the borrowers can not sell or work out another arrangement.

Fannie Mae and Freddie Mac will occasionally accept a charge-off of a mortgage, rather than pursue a foreclosure. This is like banks charging off a defaulted credit card or personal loan. But this option will likely be used only in a small number of situations, such as when the default is on a small amount of money and the property is severely damaged and the insurance will not cover the losses.

Foreclosures for unpaid property taxes vary widely by state and county. Sometimes the house is auctioned off to satisfy the taxes. Other times, a lien or certificate is sold to the high bidder. And in some areas, no sale is conducted and the property is simply transferred from the homeowner to the county or other tax agency. In most jurisdictions, homeowners have the right to redeem their property after the auction for delinquent taxes.

The following are some defenses homeowners can still raise after a sheriff sale to delay or challenge the foreclosure process and auction:

• Irregularity in conducting the sale
• Sale price at auction was grossly inadequate
• Homeowners did not receive notice as required
• Sheriff sale was not advertised as required

Any physical problems with a property make proceeding with a foreclosure much less desirable for lenders. An appraisal, Broker's Price Opinion, or other type of valuation from a trustworthy source should be included with any workout proposal, loan modification, or short sale request homeowners make if there are deficiencies in the condition of the house.

If borrowers run into a brick wall dealing with the mortgage servicing company, they can go a step above and contact the holder of the loan. Large banks, institutional lenders, Fannie Mae, and Freddie Mac, among others, will often push a servicer to intervene and work out a solution with homeowners to stop foreclosure, modify a loan, or delay a sheriff sale.

Most people think that Wall Street was primarily responsible for securitizing junk loans and unleashing the subprime crisis. In reality, though, over 50% of mortgage securitizations are guaranteed or issued by Fannie Mae and Freddie Mac (two government-sponsored enterprises), or Ginnie Mae (Government National Mortgage Association).

In a mortgage modification or other workout agreement, it is always easier to negotiate down interest charges, late fees, and other unexpended costs to the lender. These are costs the lender has not paid out of pocket, but has instead just tacked onto the loan balance. They can and should be negotiated away.

According to the Truth in Lending Act, homeowners can request their mortgage servicer to identify for them the person or company or organization that holds the mortgage. The servicer must comply with this request.

Sometimes homeowners are able to delay a sheriff sale over and over again. While this seems a little counter-intuitive, if the lender does not accept the request for a postponement, it may face liability for acting in bad faith. Pursuing foreclosure and using the courts is usually considered the last option, and if the owners are working on a mortgage modification or short sale, for instance, the county auction can be called off relatively easily.

When homeowners fall behind in their payments, it is often the mortgage servicing company that initiates the foreclosure proceedings. While some borrowers have been successful defending their home due to the servicer or lender being unable to prove it holds the original note, not many people at all are aware of the fact that there are often three servicing companies involved in a foreclosure action.

The first servicer is called the master servicer, and homeowners may never know who it is or have much contact with the company. However, its role is to oversee all of the other servicing operations and companies that will be involved in the mortgage or any foreclosure proceedings.

It is the subservicer that the homeowners will have the most contact with during the time they are making payments on the mortgage. The subservicing company is the institution that collects payments from borrowers and maintains the escrow accounts for paying property taxes and homeowners insurance. If the subservicer does not take care of some of these services in-house, they may contract with tax service professionals and insurance companies, among other.

The third type of servicer is called a special servicer and is typically involved only when homeowners fall behind. After sixty days of late payments, the special servicer may begin loss mitigation attempts or just begin the foreclosure process. Again, this servicing company may contract out some of its functions, including loss mitigation, property inspection, or hiring local attorneys to foreclose on the house.

With all of the allegations of mortgage servicing fraud over the years, including misplacing on time payments, forced placed insurance, underfunding escrow accounts, making late property tax payments, and lying in court to cover up such activities, can anyone really trust these companies? They act like glorified collection agencies in harassing borrowers and actually make more money from defaulted loans.

Mortgage servicing companies are generally paid a flat fee based on the borrowers' monthly payments, usually 0.5% of all payments collected. But they are given a huge incentive to take advantage of unsuspecting homeowners because they retain 100% of any late payment charges or other fees. So the servicer has no incentive to help homeowners and make sure they pay on time or keep accurate records.

However, the companies have every incentive to "lose" payments and tack on a late fee. They have every incentive to put forced insurance on a home through an affiliated company, raise the monthly payment, and charge fees. They have every incentive to underfund escrow accounts, take money from the regular monthly payment to make up the shortfall at tax time, and then slap on a late charge to the account.

Servicing companies can provide a valuable service in the mortgage market by making it easier for lenders to engage in other business than collecting payments and administering accounts. But when these companies are given huge incentives to treat homeowners like deadbeats or turn them into foreclosure victims, one has to wonder what side the banks that hire these companies and agree to these terms are on.

For subprime mortgages originated in 2005 and 2006, the years before subprime loans dropped through the floor, it is estimated that 19% will default and end up in foreclosure.

Although real estate transactions involving mortgages fall under the jurisdiction of state foreclosure laws, the securities created by real estate mortgage loans are considered personal property and treated by the law as such.

Some state deceptive practices statutes (also known as UDAP statutes) actually exclude real estate transactions and some credit transactions. Some lenders are also specifically excluded, as well as other transactions regulated by other agencies. After all, the creation of money and credit out of thin air is a deceptive practice in every case.

If a lender accepts a late payment from a homeowner, it may be viewed as the court as the bank having waived its right to require on-time payments.

This is interesting: if the foreclosing mortgage holder is the FDIC or RTC, the homeowners may not be able to bring some claims in court. There are doctrines called "super holder in due course" and D'Oench, Duhme that apply here.

In some cases of a first mortgage on a primary residence, cram downs in Chapter 13 bankruptcy are allowed. These involve instances where the mortgage covers more than the property and some other incidental property types, or if the last payment due on the mortgage is within the bankruptcy payment plan term. If either of these apply, the loan can be stripped down to the value of the property.

One of the consequences of building a business model on the assumption of perpetually rising housing prices is that, when those values stop rising and actually begin falling, it becomes increasingly difficult to stay in operations at the previous bubble level. Local governments are finding this out the hard way, as they struggle to generate revenue through property taxes in the midst of high foreclosure rates.

Homeowners who end up facing foreclosure can expect to pay an average of over $7,000 if they get back on track. This includes administrative fees the bank charges, late fees, legal fees, foreclosure costs, accelerated interest, and whatever other junk fees the bank can come up with. While this seems like a large amount of money, it is a small sum compared to how much the typical foreclosure costs the local government.

When a house goes into foreclosure and the lender ends up purchasing the house back at the auction, it often sits empty and falls into a state of disrepair. The longer it sits on the market with no buyers, the more it will deteriorate and the more drag it will have on local property values. The government will also be expected to provide services to the property even though it is generating little, if any, property tax revenue.

Just to keep up on the property, including utilities, sewer and water services, upkeep and maintenance, and property taxes, local governments lose an average of $20,000 per foreclosed house. During the boom, these same properties may have generated thousands of dollars per year in taxes and service charges while requiring no government involvement in maintenance or upkeep.

Local governments, therefore, should be expected to do whatever they can to attempt to change this new outflow of funds and loss of tax dollars when homeowners are unable to stop foreclosure. Unfortunately, instead of cutting back on salaries or staff and cutting tax rates to encourage new buyers to purchase these foreclosed homes, counties and cities have turned to coercion and violence to make up budget shortfalls.

Thus, there are more speed traps to hand out tickets to drivers putting no one in danger but operating a vehicle in a manner contrary to bureaucratic opinion. Parking meters in large cities are more expensive, run fast, and fill up sooner, while drivers receiving parking tickets anyway. Property taxes stay the same, if not rise, during the depression, which discourages properties in the area from being sold.

More rules, regulations, fees, fines, taxes, and stimulus packages will not encourage a turnaround in the housing market or the economy. These just increase the burden private people have to bear to fund varying levels of government that are running out of money anyway. While all of us have to get by on less income and save more, politicians and bureaucrats believe that they can solve all the problems just taking and making more money.

But the more government services weigh down communities and the nation as a whole, the longer it will take for business and people to recover. The less money we all have to spend on the things we want, the fewer businesses will be able to provide those goods and services and the more unemployed people we will have. This is unfortunate, and the nation needs to shake off the burdens of government to recover.

Private mortgage insurance is paid by homeowners, but it allows the bank to recover from 30-50% of the losses on a mortgage foreclosure.

There are three types of servicers in a typical mortgage -- the master servicer, the subservicer, and a special servicer.

One of the main reasons banks turned to securitization of home loans was to protect investors, lenders, servicers, and everyone else from the liability of the loan originator. But the idea has backfired in that hiding the loan in hundreds of different hands means no one owns the loan or has the legal standing to sue for foreclosure.

The players involved in a typical securitization: lender, seller or wholesale lender, issuer or depositor or Special Purpose Vehicle, servicing company, trustee, custodian, underwriter, ratings agency, insurer, warehouse lender or facility.

responsiblelending.org has reported that 60% of refinance mortgages during the boom were subprime.

Average estimated costs per foreclosure:

• $7,200 in costs to the borrower for administrative fees
• $20,000 to local government for taxes, utilities, water, sewer, maintenance and upkeep
• 1% drop in property values within 1/8 mile radius of foreclosed home

One of the scariest aspects of the current downturn in the housing market is the vast number of abandoned homes in certain areas. It has always been somewhat eerie to drive down a block and, in the midst of dozens of other properties, see a house boarded up and falling apart with an unkempt lawn and dying grass. But now it is common to see several homes on a block abandoned and left to rot.

This situation causes an obvious public safety hazard, but the rising number of foreclosures has also meant that property tax revenue to local governments have been declining. So if there is a leaky roof, standing water in the pool, a gas leak, or vagabonds living in the house, it is up to the neighbors to take care of the problem. Local police and city street departments may will get to the house when they get to it, maybe.

As both private individuals and state governments get desperate for the funds they need to survive at their current living standards, they will turn more often to theft and violence. While private citizens may squat in a house or turn to dealing drugs or robbing homes, governments will raise income taxes, fees, fines, and increase the number of tickets that local cops hand out to drivers.

Because of the foreclosure crisis and the rising unemployment rate, cities and suburbs are becoming more dangerous by the day. And the rising crime and large number of empty homes will just drag property values down even further, causing more properties to be abandoned and tax revenues to fall even more. The situation seems to be going from bad to worse, despite all the overly optimistic talk of green shoots.

The core problem for the states and people, it seems, is a lack of money. And the news about the American dollar has been even stranger in recent weeks than anything I have ever read. Take, for example, the two Japanese men arrested in Italy carrying $134 billion of American Treasury bonds. The bonds have been declared to be "likely fake" and the two men have been released without being charged with a crime.

So it is clear that smuggling hundreds of billions of dollars of maybe fake American bonds into foreign countries is not a crime? Is this really how we treat our money and government debt in this country? People can not really counterfeit hundreds of billions of dollars and then deposit it in a bank account in Switzerland, can they? No wonder fewer people than ever trust the value of the dollar.

Governments and the people, though, are still scrambling around to try to obtain as many dollars as possible, because enough people still accept them to make them worth trading for. Yet, the fact that anyone counterfeited hundreds of billions of dollars, was caught, and then got away with the crime anyway just shows me how little even our government cares for the value of the money they print for us to use.

I have an idea. Maybe all of the states facing budget deficits can just print a few ten or hundred billion dollars out of thin air. And private citizens would be able to do the same. We can all print as much money as we need from our home computers without ever having to work again. But of course, this would be illegal most of the time, as the federal government claims a monopoly on printing phantom money out of nothing.

Trust in the institutions of this country are being eroded further every day. People are ending up homeless, jobless, and holding onto money that is losing value and being treated like toilet paper by our government and the rest of the world. Is it any wonder more are turning to black market housing, black market jobs, and moving their little remaining wealth out of the government and stock market that just finished impoverishing them?

For one reason or another, it seems that the United Kingdom is the training ground for the most diabolical seizures of government power that a people will withstand. Cameras everywhere, guns not allowed to be held by private citizens, police officers actually waterboarding drug suspects, and now a mass seizure of private vaults by the state have made watching news from England a most disturbing experience.

In the latest raid, the government seized over 7,000 safety deposit boxes owned by private citizens and have declared that 90% of them were being used in crimes. In fact, each box itself is treated as a separate crime scene by the UK police, and anyone who wants to get their belongings back will have to prove to the state that the contents were not involved in the commission of any crime.

Because the fact that proving a negative is impossible, most of the people who owned private vaults will end up losing the contents and be just that much poorer while the state gets that much richer from its theft. The government is claiming the right to seize a private person's assets on the belief that they may be criminal assets and then the individual has to prove that they are not criminal assets in order to have a chance to get them back.

The police in the United States have similar powers under state forfeiture laws, where they are able to confiscate the money, car, home, and other assets of suspected drug offenders. It is then up to the people arrested to mount a legal case (without the use of their assets) in order to get their private property back from the state. It is ludicrous and criminal to take someone's resources, then force them to prove in front of a judge working for the same gang that stole the assets that they should have them back.

Will the state eventually come for people's private property in their homes and their safe deposit boxes, as well? If the government really needs cash to keep funding its operations, welfare programs, security institutions, and taxing agencies, what is keeping it from invading homes, declaring any asset to be a likely criminal asset, and then just confiscating it and keeping it indefinitely?

At least in the UK right now, the state is claiming this right and sending in cops who do not know any better to steal from people. Mark Nestmann's blog here does a great job explaining how difficult it will be for the average person to get property back once it is taken by the state. In the most basic terms, whatever the government takes, you should never expect to get it back.

Does the increasingly smaller group of people who still have jobs and incomes and assets really need to live in fear of being preyed upon by the government that is supposedly providing them services? More parking tickets, speeding tickets, fines, fees, warrant "roundups," forfeiture laws, and now direct invasions of private vaults and safe deposit boxes are becoming increasingly common.

But in a country that routinely needs to come up with hundreds of billions, if not trillions, of dollars to bail out banks and corporations, it should be no surprise that the people will be targeted. It matters little that they are also running out of money, looking at potential unemployment or shutting the doors of their businesses, or being foreclosed upon. All that matters is the state keeps up its welfare payments and maintains its ability to use force.

Will blanket raids of private vaults for no reason make an appearance in the United States? To ask that question is probably to answer it. And for those who believe that they are innocent of owning any assets that were ever involved in criminal activity, it bears mentioning that 95% of all currency in circulation is tainted by residues of drug use. Do you have any cash on you at all? You're 90% guilty of a drug offense.

For some unknown reason, it seems that whenever banks or lawyers are involved, rules and laws and changed and reinterpreted at will. The same institutions and people who were tasked with preventing abuse or fraud from running rampant in the economy too often fail in their jobs. But the only reaction to these failures is to give the exact same regulatory agencies more power and money.

Take, for example, the new regulatory framework for the banking and financial industry that President Obama announced this week. The Federal Reserve, which created the housing bubble through artificially low interest rates, did not predict the crisis, refused to believe it was as bad as it was, and is now optimistic about recovery that only it sees, is being given more power to regulate the financial markets.

This is just what the country needs -- a semi-public, semi-private, secretive banking institution that is able to print money and raise or lower interest rates at will but which can not even see or predict the market bubbles that it is creating. The only flaw in such a system is that it just does not have enough power already, and therefore must be given responsibility for the system as a whole.

So the president wants to change the banking rules to give the Federal Reserve responsibility for managing systemic risk to the entire financial system and economy. This is the same institution that, if abolished, would go a long way towards eliminating systemic risk. Moral hazard and systemic risk have been institutionalized by the Federal Reserve system's policy of lowering interest rates and bailing out favored companies.

The rules, though, are always changed to give the government's favorite institutions more power, while the people have their money taxed or inflated away to pay for these new power grabs. In the end, these laws, the stated purpose of which is to protect consumers and borrowers, are always used against the same people they were written to protect. The more laws they write, the easier it is to find one to justify any action.

Most of these new changes and laws will be put into place for a small number of reasons. One will be to increase the profits of the banks and its government insiders during good times and to socialize the losses on a system-wide basis in bad times. Another purpose is to conceal the first purpose in a maze of new bureaucratic red tape and regulations. The more opaque the system becomes, the easier it is to fleece Americans.

Homeowners and consumers will be expected to pay the bills for these new regulations and profit-increasing schemes. Although borrowers and banks both entered into the housing bubble hoping to gain huge profits without working, only the banks went in knowing that any huge failures would also be rewarded with profits in the form of government bailouts. There was virtually no risk for lenders, as they got the houses and the payoffs.

Although there is nothing wrong with huge profits, the companies and individuals making large amounts of money can not expect the government to steal money from taxpayers in the event of a downturn in the economy. But the government also can not routinely bail out private corporations just because their failure would put some former bureaucrats out of a job and eliminate future board of director positions for politicians.

In the absence of the federal bailout policy, does anyone really think that banks would be able to run roughshod over the American people? Would banks be able to foreclose on millions of borrowers and still receive hundreds of billions of dollars care of the same people they are foreclosing on? But the banks rely on the force of government to make them whole, rather than negotiating with borrowers in the market to stop foreclosure.

After all, the only result will be more government jobs for banking regulators, more banking jobs for former regulators, and more power given to proven failures like the Federal Reserve system. Negotiating with borrowers for mortgage modifications? It is much easier just to foreclose, claim "systemic risk," and get in line for a bailout taxed or inflated away from the same homeowners the banks refuse to negotiate with.

Many investors have made a lot of money over the last 3 years with bank foreclosures. But they've either taken on a substantial amount of risk or they've worked very hard to make their money. As always, there are a few who got lucky and were in the right place at the right time, but in general, foreclosure investing is either a big risk or a lot of work.

When it comes to investing in foreclosure real estate, in todays market, it's necessary for someone to take a loss in order for the investor to make a profit. In most cases, it's the previous home owner who ends up losing. Some investors think they are doing the homeowner a favor when buying their home, but the fact is, unless they are paying near the market value, it's unfair to the homeowner. This is such a problem in some states that they've adapted laws against investors buying a home in foreclosure and reselling it for a profit.

Many real estate investors have also lost their fortunes by getting into the market at the wrong time. Very successful individuals, developers, and corporations have all lost millions due to buying foreclosure properties that continue to decrease in value. With the economy in the shape it's in today and the government printing and giving away money that it will never have, it's just a matter of time until there is a complete financial meltdown. Expecting a property value to increase is just not a good bet anymore.

For example, an investor I know in Cleveland found several homes that (at one time) appraised for $80,000 to $120,000 and because of the market and foreclosure rates for the neighborhoods, these homes could be purchased for around 50% of the appraised value. In past years, this would be an investors dream deal, so he purchased about 20 of these homes. Less than one year later, the value of every single home is less than $20,000 and he has lost nearly one million dollars because of this transaction. I hear stories like this, and worse, every single day.

In my opinion, investing in foreclosure real estate has become too risky of an investment. With the foreclosure laws changing on such a regular basis and all the fraud and misconduct going on, making a profit with a foreclosure property is not only very hard, but it can actually be illegal under the right circumstances! I would rather stick to a safer bet, one that doesn't involve the risk of going to jail.

Many people are also getting into loan modification or forensic loan research businesses. If you are looking to start a business and you can obtain the proper licensing for your state, you may succeed. But the government is making it harder and harder to operate this type of business. The fact is, they don't want consumers to use for profit companies. They only want homeowners to get help through government programs or directly through the lenders. This way they have more control over the deals and interest rates that are agreed to. This helps them control their own profits and losses. Getting into this type of business at this point in time will likely end in failure because of government regulations and the many established businesses who already do a better job than you likely could.

A better option would be to invest in a business that is already successful at helping clients out of foreclosure. A business that has already obtained the proper licensing and has withstood the many hardships of our industry. These businesses can be wildly successful and many of them would welcome new investors. At ForeclosureFish, our main business is finding clients for other loan modification or short sale companies and we know that many of them are actively seeking investors.

We have a similar program with our network of established modification companies that allows investors to get involved without as much risk and without any physical work. Investors can participate in a marketing program that generates clients for these companies. In exchange for funding the marketing, they share in the profits obtained from their contribution. This type of investing is more secure in todays market, because fluctuating real estate values can actually help the investment. Although government laws and regulation can still effect the returns. This type of investing may not return the windfall returns that some (successful) foreclosure real estate investors see, but a steady 20%-40% return can be a nice addition to any portfolio. This type of scenario also allows investors to start on a small scale and grow with the business, which also mitigates a lot of the risk.

If you have been thinking about getting into the foreclosure real estate market, or other ways to invest in the foreclosure industry, then make sure you do your home work and talk to other investors before jumping in. As with any investment, doing a little research up front will pay off huge in the long run.

Many people facing foreclosure do not realize it, but there are several areas of the law that prohibit a mortgage lender from taking advantage of homeowners in a foreclosure situation. Every day, borrowers claim that their mortgage company "just wants my house because it is worth more than I owe.” In a few cases, this may be true, but legally, the lender must sell the home at sheriff sale for its fair market value and pay the former owners any proceeds over and above the amount owed. Banks may try and take advantage of the fact that most consumers do not know their rights when it comes to foreclosure.

The main issue homeowners run into is a lender selling the home as quickly as possible at a county auction, just to pay off the mortgage. They never seem to care about the previous homeowner and the money they could receive from a fair sale. For example, assume a home is worth $300,000, but the total payoff is only $275,000. The mortgage lender has a legal obligation to sell the home for as close to its fair market value as possible, which is $300,000. This would mean the former owners would get $25,000 back after the sheriff sale.

What usually ends up happening is the bank accepts the first offer they receive of, lets say, $250,000, then they sue the home owner for a $25,000 deficiency judgment. In a case where the bank should be paying $25,000 to the homeowner, they end up stealing the home and an additional $25,000, due to their refusal to sell the home at its fair market value! This is clearly a violation of the lender's duty to obtain a fair and reasonable price for a property that it is foreclosing on due to nonpayment of a loan.

For homeowners in the process of having your home foreclosed on, or those who have already lost the house to foreclosure, then it is imperative that the find out the current market value of the property. Borrowers may be owed thousands of dollars in the event the home is, or was, sold for less than it was worth. In fact, there are numerous cases where previous homeowners have gotten settlements in court for tens of thousands of dollars due to the bank's violations. Understanding foreclosure rights and the laws when it comes to facing foreclosure is probably one of the best ways of avoiding losing a house altogether. If homeowners did not understand their rights and were taken advantage of, there is a chance they can get their home back, or at least sue the lender for its misconduct.

The best way to determine a home's value is to is to get a full appraisal from a local, qualified appraiser. However, this can be somewhat costly, after facing foreclosure and it may be hard to justify “throwing good money after bad.” A better recommendation is to get a Broker's Price Opnion (BPO) or Property Valuation from a qualified source. I do not recommend using an online service that offers a free valuation, because they are rarely accurate and do not take into account the condition of the home or improvements made.

Ultimately, if a lender violated its duty to homeowners when foreclosing on a home and sold the home after the sheriff sale for a higher price, then borrowers need to take action sooner rather than later. Homeowners can not just sit back anymore and let the lenders get away with breaking the laws and taking profits on sales that they are not entitled to. As well, borrowers can not remain in ignorance of their rights, their lenders' duties, and simple fair dealings. Homeowners should take action today and force their lenders to answer for their wrongdoings and corruption.

This week, President Obama is expected to make another announcement about the banking and housing markets. This latest one will be an enormous overhaul of regulations on banking and the financial industry. So, since a new government plan will soon be unveiled promising to save us all from economic ruin, it might be a good time to evaluate the successes or failures of previous government plans.

Since the banking meltdown began in the summer of 2007, there have been dozens of attempts by the politicians and bureaucrats to discourage bad lending, encourage lending to the poor, provide incentives to investors, reduce CEO pay, making housing affordable, prop up housing prices, divert money from private employment to new government jobs, and so on. Have these dozens of regulations helped yet?

One of the first programs was the Hope Now Alliance, developed to help banks, the government, and homeowners work together to modify mortgages that were in danger of foreclosure. The program was voluntary for the banks to participate in and more borrowers ended up with expensive repayment plans than actual loan modifications. But even the modifications have a 60-75% redefault rate.

To help financial institutions that had created securities out of mortgages but had no buyers, regulators proposed a Super Conduit to funnel investor money into these worthless securities. At the time, the government thought the problem was frozen markets -- in reality, the freezing markets were only a symptom of the problem that no one trusted or wanted these bad loans any longer. There were no buyers for the super conduit.

In April of 2008, the government decided to provide insurance for $300 billion in new refinance loans, along with giving $15 billion in handouts to the state governments. The refinance insurance was designed to assist close to 500,000 borrowers, although it does not seem to have made much of a dent in the foreclosure rates for the country as a whole.

A few months after this, in July, the Federal Reserve came out with some of its most obviously unnecessary regulations. It finalized new rules requiring mortgage lenders to verify borrowers' incomes and their ability to pay back mortgages that were made. In all honesty, any bank not doing this deserved to go out of business, but apparently the Fed had to waste time and resources to tell the banking system not to kill itself.

In December of 2008, President Bush announced a the new FHA Secure program, another voluntary plan which encouraged banks to lose money and recognize losses on their balance sheets. The plan was to freeze interest rates on mortgages, although this was after many rates had already reset to higher monthly payments.

By now, everyone knows the fate of the Hope for Homeowners program, which was another brilliant idea to save homes from foreclosure. After being given over $300 billion, the end result has been one family facing foreclosure has received a new loan. The remaining applicants did not qualify for government help or their banks would not participate in the voluntary plan.

And months after President Obama's economic stimulus plan was passed, unemployment in almost every sector of the private economy is increasing. The only real job gains (besides the figures the government just makes up) have come from the government hiring people. Unfortunately, though, this is just another drag on the economy as the state produces nothing of value in the market.

The one regulation that props up all the bank failures and encourages mindless lending decisions is the FDIC insurance on bank deposits. The entire regulatory structure of banking encourages the financial institutions to take excessive risks with depositors' money, knowing that the government will step in and bail everyone out in case of disaster. This is the regulation fueling the fraud and it has been increased.

But now, the regulators in Washington who set the economy up to fail, did not recognize the severe problems in giving loans to the destitute, and denied the collapse as it was happening, are now going to give us a new regulatory structure. How these people were ever believed when they proclaimed themselves the experts and saviors of the economy is completely unbelievable.

One of the most stressful periods in any homeowner's life is the few days and weeks leading up to the closing of the real estate sale and the funding of the mortgage. The hectic nature of this process makes it far more likely for borrowers to feel rushed and stressed out and makes it much easier for banks, mortgage brokers, real estate agents, and title companies to overlook certain aspects that will later harm the borrowers.

In fact, many homeowners have reported that the terms of their mortgage changed between the time they were quoted their loan and when the closing was finally done. While some differences will be reasonable due to changing conditions, borrowers have been given adjustable rates instead of fixed, sold homes that did not pass inspection but were not told until too late, or had to bring more money to close than they originally thought.

Whether these are honest mistakes or simply methods that the bank, lawyer, or brokers use to increase their fees and commissions at the last second is debatable. But closings are usually rescheduled a number of times. By the time the closing is really scheduled, everyone seems rushed and homeowners are told to sign dozens of pages of contracts, notices, and disclosures.

Also, almost everyone else is present at the closing except the mortgage broker. The Realtor, lawyer, and closing agent will be present, but the most important person, the one who sold the owners the mortgage, is usually not there. This means that if the terms had been changed without the borrowers' knowing about it, or mistaken documents were sent, it is likely no one would catch it or care even if they did.

The one person who might be able to answer any questions is the title agent, who receives all of the paperwork and instructions for the closing directly from the mortgage company. But closing agents have been held liable for statements they make about the loan, so most have stopped making any statements about them at all. They instruct the borrowers to sign and attempt to appear as busy as possible until the closing is done.

And after all, the title company that usually handles the closing does not get the instructions from the lender until the day before or the day of the closing itself. Despite laws stating that the final settlement statement should be available for the borrowers' inspection at least 24 hours before closing, this does not always happen in real life. Again, everyone is rushed and the owners will not even know how much money to bring to close.

The entire process makes it so much easier for slight changes to be made to the terms of the real estate transaction or mortgage without the new owners being aware. And from the shared experiences of many borrowers, it seems that this was too often the case. In all the of the rush of trying to get the loan closed, new owners did not even notice the changes and were certainly never given the time to read all of the documents that are now being used against them to take their homes.

Since the collapse of the economy began with the rising foreclosure rate in subprime mortgages, the state of California has become a microcosm of the entire American housing market. With each passing month, the state finds itself closer to filing bankruptcy, receiving a federal bailout, or both. California became host to some of the the hottest real estate markets in the country, but the collapse has hurt both the government and the people.

During the housing boom, California was the heart of the mortgage industry and especially the subprime mortgage sector. Lenders in the state pumped housing markets all over the country full of cash, but the people of California themselves received the most money from the growing mortgage industry. With cheap money pouring in from Wall Street investment firms to these lenders, the only consequence could have been a bubble.

As real estate values increased by 10%, 20%, 50%, or more every year, everyone became a speculator. Instead of having a job and saving up for a house, Americans could buy a house so that they could avoid having a job. All they had to do was wait for the next greatest food to purchase their home for an even more ridiculous price. And for a number of years, this tactic worked and people made money hand over fist.

But, most important for government, higher real estate values also translated into higher property tax rates. As a result, local and state governments in California grew beyond all reasonable bounds. More services were offered, entitlement programs created, and bureaucrats hired and paid enormous salaries and pensions for living parasitically off of the citizens of the state. All this was funded through cheap Federal Reserve and Wall Street money.

But all bubbles must come to an end, and the real estate bubble in California and across the country was no different. The bubble burst in a mess of rising foreclosures, declining home prices, and continuing job losses. The state has reacted to this by trying to keep up its bloated size, and property taxes have fallen little, if any. This makes it more expensive to purchase a home in California, and has caused further declines in home values. But the state refuses to shrink, even in an economic collapse.

And due to the recession, which has hit Californians especially hard in terms of property value declines and job losses, no one wants higher taxes just to maintain expensive government salaries and entitlement programs. As more people apply for public aid, fewer people are available to fund these programs and do not have enough money themselves. As a result, the more government tries to save people, the more people it pushes out of employment and onto the streets.

So, as a result of a government grown enormous and a population unable to afford the price any longer, the state of California in danger of running out of money nearly every month. The budget shortfall (not the budget itself) is in the tens of billions of dollars. In addition, the state seems unwilling to balance its books and live more frugally, as millions of people across the nation are being forced to do by economic circumstances.

As is the American tradition, one of the hallmarks of our culture and an activity a majority of the population engages in at one time or another, as soon as the housing bubble burst, the lawsuits began. Homeowners sued loan originators and Realtors, investment firms sued originators under buyback agreements, and everyone else sued as many people as they could. After all, everyone is entitled to utilize the courts, right?

The number of parties bringing lawsuits against each other for various aspects of mortgage fraud, combined with the already high foreclosure rates, has put a strain on government court systems across the country. Even in the best of times, the judicial system in America has been more concerned with preserving the myths of state power and awarding the rich with more judgments against the poor.

With the bursting of the real estate bubble, though, a number of parties involved in the inflation by fraud have entered the courts in an attempt to seek "justice," also known as trying to avoid any consequences of their poor financial decisions over the past decade. And with the complicated mortgage and real estate contracts, securitization documents, and buyback agreements, these lawsuits will put an even larger burden on local courts.

For instance, investors in toxic mortgage securities have begun suing the loan origination companies and lenders. The investors are stating that the originators should have made them aware that these subprime mortgages were more likely to default. The lenders, according to these lawsuits, failed to disclose the true risk of the assets. The problem with these suits is that so many originators have gone out of business by now.

Another lawsuit that has increased in popularity since the collapse of the housing bubble has been the investors in securitized debt against the Wall Street investment firms that bought the loans and then turned them into mortgage backed securities. Wall Street knew, say the investors, that the mortgage were junk and this should have been disclosed.

The investment firms also took the highest interest rate tranches of the securities. In essence, they sold investors payouts based on lower interest rates and kept the higher rates for themselves. But the low rates were part of the perception that the investments were safer than they really proved to be over time as the underlying loans went bad.

Local governments have also begun initiating lawsuits in local government courts (conflict of interest? ) against mortgage companies. The governments are alleging that they have been damaged by the pumping and dumping of their communities. They were obviously relying on the pumping of real estate loans to continue to fund higher tax rates, and the decline in home values has created massive problems of funding programs.

These few examples of lawsuits do not even begin to examine the numerous suits involving homeowners themselves, who are both being sued by banks and suing them for fraud, predatory lending, or initiating class action suits. But the government courts have become the arena in which many players in the real estate bubble have turned to in order to prevent losing even more as a result of the collapse.

When homeowners in foreclosure run out of options that would let them keep their homes, many decide to sell. The problem they run into, though, is that they owe more on their home than it is worth, and no potential buyer is willing to pay tens of thousands of dollars above the market value. In this case, a short sale may be the perfect solution, but the possibility of fraud has been contributing to lenders' reluctance to approve offers.

In a typical short sale, the homeowners provide an appraisal or Broker's Price Opinion (BPO) to the mortgage company to prove that the property is not worth as much as they owe on the loan. This is to convince the bank that it is better to approve the short sale offer, accept less than the total amount owed, and get as much as they can for the property. This can be an effective solution to foreclosure if the numbers make sense to the lender.

Unfortunately, the same speculators, investors, and other home buyers that relied on deception and fraud to obtain mortgages during the real estate boom are now engaging in the same tactics to defraud banks in short sale transactions. During the bubble, appraisals were often inflated, using the highest comparable sales, even if the compared properties were not in the same town or were built decades apart, for instance.

Now with the collapse of the housing market, this fraud is being reversed. The people selling are offering appraisers or real estate brokers fees to create the appearance that a house is worth far less than its true market value. Comparable sales with low values will be used, and any defects of the property will be highlighted when presenting a short sale offer to the bank.

But this deception makes it easier for those who get away with the fraud to sell their home through a short sale to a friend or family member and end up with a much lower mortgage balance. The bank may accept $50,000 less to avoid foreclosure, but the homeowners stay in the property and make rental payments to whomever purchases the house through the short sale. They may save hundred of dollars a month in payments.

While this tactic is perfectly legitimate and may work for many homeowners who are facing a financial setback that changes their long term income potential, the deception practiced on the bank is still counterproductive. It may work in some individual circumstances, but it makes the banks more wary of accepting short sale offers from other foreclosure victims.

And with fewer short sale offers accepted, more properties will go into foreclosure, which will drag down property values even further. People that have a short sale approved through fraud may find out in several months that they are back in the exact same position of owing more on the home than its current market value justifies. Of course, this situation will require another manufactured BPO and short sale offer.

One of the first concepts of responding to an emergency that first responders, first aid workers, and the military learns is triage -- differentiating between the dead or the merely wounded and deciding which survivors of a disaster should be given assistance first. But in an emergency where no medical care is available and the ambulances have run out of supplies, this process may be reversed.

In most situations where it is only a matter of time before a wounded person can get to a hospital via car, ambulance, or helicopter, the first responders in an emergency will attempt to stabilize the most seriously injured. All efforts are made to help those most in need, while the walking wounded and those not likely to die right away are left alone, to be assisted later on.

But the assumption underlying such regular triage efforts is that it is best to help the most seriously hurt and keep them alive until specialized care is available again. It is only a matter of stabilizing the dying or gravely wounded; once the ambulance arrives at the scene, the paramedics will take them to the emergency room where a team of professionals will stick them full of painkillers and fix the problem.

In the class I took recently about medical emergencies in the absence of specialized care, though, this system of triage is reversed. The people with the worst injuries may not be able to be cared for because it is far less likely they will survive. Without a virtually unlimited amount of medical supplies, bandages, anesthetics, and equipment, it becomes an issue of providing care to the people most likely to survive -- not least likely.

This is due to the simple reason that, if there is expected to be a shortage of medical care for a long period of time (over 72 hours), supplies will need to be rationed in order to provide the greatest number of people the best chance to survive over the long term. Medications and bandages can not be used up completely on one seriously wounded person if there are more people that can be saved with less grave injuries.

In fact, the class taught me that it is better to treat the people least injured because they will have the greatest chance of surviving for the long term. Someone already dying may be given a few extra days to live, but if the resources expended to do so preclude helping others, tough choices will have to be made by those with any medical training at all. And the shock of an emergency will make these choices even more difficult.

Of course, this makes for some obviously very tough decisions about friends, family members, and neighbors. When you can not save everyone, who gets medical treatment first? It may not be plausible to use the time and supplies necessary if there is only a small chance of saving a life. Those are supplies that may be in short order in the future and can be used on people in less dire circumstances.

Unfortunately, these issues are ones that people will need to begin thinking about more often, as the government has proved that it is incapable of providing people after emergencies with necessary assistance. Too many homeowners saw their properties destroyed or robbed during recent hurricanes, and that was only if they were lucky enough to survive the disaster without dying of drowning, trauma, or dysentery.

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Over the past few months, I have been taking more courses on how to survive in the absence of government services or specialized health care during a period of civil unrest caused by a natural disaster or severe economic collapse. One of the more interesting classes, and one which provided a lot of useful information for homeowners, was on how to protect against an invasion of a home by a violent criminal.

The most important concept I learned was that of managing perceptions and the nature of the typical home invader. The type of person robbing a home is often cowardly and hoping to rely on brute force. If he was hardworking, he would have a job. And if he was a master criminal, he would be knocking off a casino, bank, or richer target than the average private residence -- in essence, someone breaking into a home is looking for an easy score.

This is why the first line of defense in protecting against such an event is simply making a property look like it is well prepared. Dummy cameras can be put up that look intimidating to the average criminal but may not be recording anything at all. In addition, it is easy to purchase or print out a fake sign indicating a property is protected by ADT Security, Brinks, or another security company.

A few signs and dummy cameras may be enough to deter most lazy criminals, who would rather move on to the next house and not risk the possibility of setting off an alarm or being caught on film. This can also be done with abandoned buildings in a community hit hard by foreclosures in order to create the appearance of well-defended properties, which criminals may pass over if they were trying to squat or steal.

But the doors of a house can also be upgraded or defended. Most doors to homes are build of wood but have a hollow core which is easier to kick in. A solid core door with a one-inch deadbolt can make it much more difficult to break in. In addition, door hinges should have at least four holes for screws and it is a good idea to use three-inch screws in the hinges. Most doors come with two-inch screws, and simply upgrading them makes it more difficult to break down a door.

Doorknobs are weak points of many homes, as the knobs are of low quality and can easily be picked or forced through. Most hardware stores have Grade 1 or 2 knobs that are resistant to twisting, prying, lockpicking, and other forced entries. The deadbolt can also be upgraded from a standard model to include beveled casing and a latch mechanism on the bolt to prevent it from slipping under force.

Unfortunately, many people will remember to secure their doors and knobs but have no problem leaving windows open even if they leave to go run errands. This presents a perfect opportunity for invasions, as the screens can be pushed up and the windows forced further open. A simple trick is to use wood dowels to prevent the window from being opened all the way, and homeowners can get into the habit of opening windows no more than six inches or so.

Mini blinds are also a great deterrent of home invasions if they are kept down while the homeowners have left the house. Burglars forcing their way through windows with mini blinds have often found it more difficult to get out of a tangled mass of blinds than to force the window open in the first place. While they are not pretty decorations for a house, they can be a useful security measure.

While there are many methods to secure a home and a community against a drastic deterioration in the quality of life, homeowners should take more precautions against being robbed. Squatters and other non-government criminals are using foreclosed homes as bases for taking advantage of people, and the situation may continue to get even more precarious as foreclosure rates push more people into the streets.

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Recently, I took a class on providing medical care during an economic emergency or natural disaster. What was most eye opening was the realization that, if anything happens where specialized hospital care is not available, the quality of health services would decline to the level of the 1850s. Some of the information I learned in that class will be shared in this article, but consulting a doctor or the Red Cross about such emergencies is a great idea for more information.

One of the most important concerns any family has is of the health of their family, friends, and neighbors. But in a situation of economic collapse, rising unemployment, a decline in government services, and increasing health care costs, it may be necessary for homeowners to survive on their own with a lower standard of medical care. Unfortunately, many borrowers rely more on their insurance and the government than they may be able to provide in the future.

As everyone witnessed with the Hurricane Katrina disaster in New Orleans, government services in the event of an emergency will more than cease to exist. Worse than that, people already receiving government welfare will use up the resources in a matter of hours and then the bureaucrats in the area of the emergency will protect their own friends and family long before they offer care to the average person.

Soon after a disaster strikes, the people who know where the government offices are and have the proper paperwork and experience will quickly suck up all of the public resources. After they have run out, the general population will be on its own to provide health care and medical services to neighbors and friends affected by the collapse of government services. This can be a very dangerous situation.

For example, in the case of hurricanes and many natural disasters, the electricity is the first to go. Hospitals may be able to continue operations, but only until the backup generators have also failed. And they will be operating at a much lower level than before the collapse. But the presence of a hospital is only assuming that anyone is actually able to make it that far from their homes.

Ambulance care will almost certainly disappear quickly, as the hospitals get full and patients are no longer admitted. Most ambulances have only enough gear and supplies to last a couple of trips back and forth between the hospital and emergency areas anyway. Once they are out of gas and medical supplies, an ambulance on the street is just a shelter on wheels, rather than a sign of health care.

It is these types of collapses that most people are just not prepared for, whether in terms of having extra over the counter medications at home or some extra bandages in case there is an accident. With the trend in the country of government taking over more and more services and industries by the day, people relying fully on these services will be truly in danger if they collapse because of economic or natural reasons.

The following is just a partial list of medical supplies that can safely be stored and home. Homeowners may want to have enough of them to last at least through a short term emergency:

Bandages
Over the counter medications (aspirin, ibuprofen, antihistamines, and so on)
Any prescriptions family members are on
Scissors
Materials to splint bone fractures or breaks
Bars of soap
Burn cream
Hydrogen peroxide
Rubbing alcohol
Bleach
Stethoscope
Blood pressure cuff
Latex gloves
Thermometer
Flashlight
Tweezers
Sponges
Towels
Sterile water
Band aids
Razors
Materials to use as a tourniquet
Plastic bags
Glucose tablets (for diabetics, if necessary)

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One of the greatest worries from homeowners trying to save their homes from foreclosure is that the bank will sell their property at auction and then sue them again for a deficiency judgment. While it is uncommon for banks to do this to borrowers, many still worry about it because the lenders will threaten the possibility of it and no one wants to deal with additional lawsuits after foreclosure.

Although even more uncommon than deficiency judgments, homeowners may be able to turn the tables on the banks by suing for their own type of deficiency judgment. In times of rising home prices, as was the case during the housing boom a few years ago, properties that sell for less than their fair market value at auction but are quickly resold by the lender may indicate violations of good faith and due diligence.

Interestingly, in a number of court cases, homeowners sued the foreclosing lender for purchasing the house at a sheriff sale and then quickly reselling the property at a profit of tens of thousands of dollars. The mortgage company (or trustee in the case of nonjudicial foreclosure states) has the duty to use good faith in conducting the auction and obtaining a fair price for the property.

Lenders that purchase the properties that they are foreclosing on are held to an even higher standard of acting in good faith and obtaining a fair price for houses that they put into foreclosure. Otherwise, banks would be able to foreclose on homes, use the court system to have properties sold at county auctions, buy them back up at distressed prices, and resell them for quick, easy gains on the sales.

Obviously, this would present an even more biased legal system than the one already in place, although banks and servicers have been suspected of using exactly this tactic in the past to increase profits. But former homeowners who understand the duties the bank has to them and recognize when they are being violated may be able to take back some of the bank's profits.

In Murphy v. Financial Development Corp., for instance, a bank bought a property it was foreclosing on at auction and then resold it three days later for $11,000 more than it was originally purchased for. The court decided the bank had violated its duties to the homeowner of good faith by knowing it could get a higher price soon after the auction. The bank did not attempt to get a fair price for the property at the county sale.

In another case, the court decided that the bank, despite there being a deficiency on the mortgage after the auction, could not pursue a deficiency judgment because it had contracted a day before the judgment was to be entered to sell the property for more than it was sold at auction. This is a pretty apparent case of the lender knowing the fair market value of the property was higher than it was advertised at auction and taking advantage of homeowners.

It should be obvious that banks will do whatever they can to take advantage of homeowners facing foreclosure. They violate fiduciary duties, duties of good faith, hire lawyers to violate court procedural rules, blackmail Congress for bailout money, and will still be willing to go after borrowers for a few more pennies that they do not have.

Authorities always say that ignorance of the law is not a defense against breaking the law. Homeowners should keep in mind that their ignorance of the law is an excuse used by banks over and over again to take advantage of them. Even in cases where lenders should be paying homeowners, they take advantage of their ignorance of the law to pursue deficiency judgments after foreclosure.

With the recent analysis that nearly 75% of homeowners offered mortgage modifications by banks or servicing companies will end up defaulting again within a year of receiving the modification, it should be clear how ridiculous the government's programs to stop the foreclosure crisis have become. However, another level of insanity is being added with the new Home Affordable Modification Program Guidelines.

These guidelines, part of President Obama's plan to save the economy from the foreclosure crisis, reward mortgage servicing companies with thousands of dollars of taxpayer money for offering loan modifications that will almost certainly redefault. The following is from the Treasury Department's press release (PDF):

Servicers will receive an up-front Servicer Incentive Payment of $1,000 for each eligible modification meeting guidelines established under the initiative. Servicers will also receive Pay for Success payments -- as long as the borrower stays in the program -- of up to $1,000 each year for up to three years.

The up-front payment is the real issue here, as it allows mortgage servicers to offer loan modifications to almost any borrower, regardless of their long term ability to pay back the loan or not. As long as the modification meets the terms of the program reducing the mortgage payment to 38% of the borrowers' gross monthly income, the banks will get their $1,000 bonus for participating in the new program.

The payout deal is also being extended to the disastrous Hope for Homeowners refinance program. According to the press release, "Similar incentives will be paid for Hope for Homeowner refinances," despite the fact that the program should be shut down -- not extended with more taxpayer money being handed out to the banks by bureaucrats who have received over $300 billion and helped only one borrower.

Even more incentives are paid to mortgage holders and servicers that agree to modify a loan before it is in default:

One-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers will be provided for modifications made while a borrower is still current on mortgage payments. the servicer will be required to maintain records and documentation evidencing that the Trial Period payment arrangements were agreed to while the borrower was less than 30 days delinquent.

Thus, the servicing company and lender will receive up front payments from the taxpayers for modifying a mortgage that may be on the short road to default anyway. Looking at a borrowers' credit history or conversing with the owners soon after a default (but less than 30 days after a payment is missed), banks will have a fairly good idea of where the loan is going -- either paid back or foreclosed on.

People are losing their incomes in huge numbers and have little means or incentive to keep a house with negative equity. In response, the government has set up a program to give the lenders up front payments to modify mortgages in an attempt to keep people in these overvalued homes. But with a 75% redefault rate, it is clear that families are losing their homes anyway and the banks are being handed over even more money.

Despite all of the incentives that banks seemingly have to work with foreclosure victims to modify loans, most attempts at loss mitigation are still a huge waste of time for homeowners, lenders, and third parties representing them. This is due to a number of factors, with both banks and borrowers having roles in the failure to work out solutions to foreclosure and to keep on top of payment plans over the long term.

One reason that loss mitigation attempts often fail is that it is a very labor-intensive process. Getting a mortgage modification approved by a bank or servicing company can take many more hours than expected, as lenders are currently swamped with foreclosures and calls asking for assistance. If homeowners are not willing to put in the necessary work or pay for someone to do it for them, loss mitigation attempts often fail.

Unfortunately, much of the work to modify a loan is simply waiting for the lender to perform one task or another. It is not uncommon to spend two to three hours on hold, simply waiting for the loss mitigation representative to pick up to confirm a fax or begin negotiating. Voicemails and emails, of course, are rarely answered, and phone calls from homeowners or their representatives may be disconnected numerous times.

The staff of the servicing companies and lenders are typically either incompetent or belligerent when working with homeowners, and few productive results are gained from speaking with them. Almost no one who has had to wait on hold for an hour and then speak with a loss mitigation representative who is unable to confirm a fax was received is impressed with the quality of service offered to homeowners facing foreclosure.

But also, the lack of service from the loss mitigation department of a lender may reflect the lack of specific guidelines for modifying loans. This is a responsibility of the investors and holders of the mortgages, but the securitization of huge numbers of home loans over the past decade has made it almost impossible to know for sure who owns a particular mortgage, let alone how the owners would want it modified.

Of course, this is not to say that it is impossible to modify a mortgage or negotiate an alternative to foreclosure, but homeowners should be aware of just how much work is involved and how little help the servicing companies are when negotiating. Working out a solution to stop foreclosure can often be more difficult than applying for the mortgage in the first place.